European airlines bump up against airport hurdles as demand recovers

Air France-KLM and IAG beat Q3 earnings expectations as carriers say strong summer demand has not waned

By Reuters

Published: Fri 28 Oct 2022, 3:52 PM

Last updated: Fri 28 Oct 2022, 3:53 PM

Strong demand to fly away this summer boosted profits at the owners of British Airways, Finnair, Air France and KLM despite airports struggling to cope, resulting in cancellations that are set to continue at the latter's Amsterdam Schiphol hub.

Air France-KLM and British Airways-owner IAG beat earnings expectations for the seasonally strongest third quarter on Friday, while Finland's national carrier Finnair reported its first positive quarter since the pandemic.

The carriers said they had seen no let up in customer demand despite a worsening economic outlook.

Advertising

Air France-KLM, however, will not be able to fully benefit from the resurgence after it has cut its capacity forecast for the fourth quarter.

It trimmed its forecast to 85% of pre-pandemic levels, down from its previous target of 85-90%.

Airlines across Europe have been struggling to rebuild capacity since Covid-19, with their efforts hindered by capacity limits imposed at airports and lingering restrictions on Asian routes due to COVID, particularly in China.

Since April, they have also faced staff shortages and labour disputes as cabin crews and pilots demanded better working conditions and higher wages.

The conflict in Ukraine caused fuel prices to spike higher, and also disrupted routes, adding to costs for carriers.

Revenue tops pre-pandemic levels

However, quarterly revenue at Air France-KLM and IAG exceeded pre-pandemic levels, both groups said on Friday, even though passenger capacity was 89% and 81% of 2019 levels respectively.

Both airlines said demand remained solid, led by passengers treating themselves to premium economy seats.

"We continue to see strong bookings," IAG Chief Executive Luis Gallego told reporters. "Leisure demand is particularly healthy while business travel continues to recover steadily."

Shares in both groups, which have had a strong run into the results, were trading lower on Friday.

Air France-KLM was down 16%, while IAG was down 3%, with analysts expressing disappointment that net debt at the latter would rise in the final quarter.

Finnair was trading up 4%, extending a positive run since late September.

Capacity crunch

KLM and British Airways had to cancel flights due to capacity constraints at their hub airports, Schiphol and London's Heathrow, respectively.

KLM said the disruption in Schiphol had cost it 175 million euros ($174.16 million) since April.

The airline's Franco-Dutch parent said demand for transatlantic flights was strong, with yields up thanks to higher tickets prices and more passengers in the more profitable sections of the aircraft, such as premium economy and business.

Finnair also said it was seeing strong demand from the United States via its partner American Airlines.

But it faces big challenges on its previously lucrative east-bound routes to Asia from the closure of Russian airspace, higher fuels costs and continuing COVID restrictions.

"A positive operating result in the seasonally strongest third quarter is a step to the right direction, but we have a long journey ahead of us to nurse the company back to health," Chief Executive Topi Manner said.

Air France-KLM reported operating income of 1.02 billion euros, beating market expectations of 844 million, for the quarter, while IAG, which had raised its guidance earlier this month, reported adjusted operating profit of 1.21 billion euros.